Volume X, Issue 2

'02

Winter 2002

THE POLITICAL ECONOMIST Newsletter of the Section on Political Economy Economy,, American Political Science Association Co-Editors: Michael Hiscox, Harvard University Brian Burgoon, University of Amesterdam

Featur Featuree

Essay

International Political Economy: The state of the sub-discipline Jeffry Frieden and Lisa L. Martin The sub-discipline of international political economy studies the politics of international economic relations. This relatively new field has moved through a stage of paradigmatic conflict to a largely consensual approach to analysis. This essay presents an analytical organization of major work within this consensual approach to IPE. It argues that the most challenging questions in IPE have to do with the interaction of domestic and international factors as they affect economic policies and outcomes. Modeling interactive effects is complex, but there have been exciting research efforts in IPE along these lines. These efforts would have been impossible without firm foundations in the analysis of domestic and of international factors in and of themselves. Indeed, the bulk of IPE scholarship has focused on these foundations, and progress made over the last couple of decades provides the essential building blocks for current and future work on the international-domestic research frontier. To develop this view, we begin by briefly summarizing work on the domestic and international building blocks before turning to the domesticinternational interaction at the frontier of the IPE research program.

In This Issue Issue::

The domestic political economy of foreign economic policy

The first large area of IPE research examines national policies toward the international economy. This sometimes comes close to the investigation of purely domestic factors about a policy that just happens to involve foreigners. More commonly, the international connection itself plays an important part in the making of foreign economic policy. In any case our understanding of the domestic politics of international economic policy requires careful analysis of the economic interests at stake, and of how they work their way through domestic political institutions. Economic interests. Most IPE scholarship on foreign economic policymaking begins with an explicit or implicit model in which politicians confront pressures from concentrated interests and the broad public. Analysis of interests can be structured along two dimensions: specifying groups whose interests are at stake and what those interests are; and specifying the organization of these interests. Ascertaining the policy preferences of groups can be done “inductively” by observation, interviews, and surveys (e.g. Dalton and Eichenberg 1993, Gabel 1998, Scheve and Slaughter 2000). Scholars have also “deduced” policy preferences from theories of how

characteristics of groups will lead them to desire particular policies, drawing from existing economic models of the distributional effects of trade liberalization and protection for instance (e.g. Alt and Gilligan 1999), and extending economic work on the effects of currency policy and financial regulation (Henning 1994). IPE scholars have also searched for theoretically-grounded ways to specify mass interests over such broad areas as macroeconomic policy and the provision of public goods, often focusing on the preferences of the median voter or other pivotal actors. Although it is important to have a clear sense of the narrow and broad interests at stake, scholars also need a sense of the ways in which these interests are organized. One simple and powerful starting point is to distinguish between concentrated and diffuse interests, especially as most scholars have believed that concentrated interests are likely to dominate diffuse interests (Schattschneider 1935). But drawing this distinction is not enough, since there are frequently conflicts of interest among concentrated interests (Milner 1988; Destler and Odell 1987) and since under some conditions diffuse interests can have a powerful impact on policy. In this context, it is important to note the ways continued on page 2

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From the Chair.................................................3

Section Organization..............................................7

The Political Economist is a publication of the APSA Organized Section on Political Economy. Copyright 2002, American Political Science Association. All rights reserved. Subscriptions are free to members of the APSA Section on Political Economy. All address updates should be sent directly to APSA.

Feature Featur Featuree Essay cont. continued from page 1 in which groups, and even broad segments of the public, are formally organized, for this pattern of organization can have a powerful impact on policy. An obvious example is the difference between labor or management interests organized on sectoral as opposed to class lines; where class politics prevails, policies are less likely to focus on industry-specific benefits and more likely to involve concerns of broader interest to labor or capital as a whole. Scholars have long noted the differences between economies with densely organized and centralized labor movements and those with more decentralized industrial relations (Katzenstein 1985). Political institutions. The interests of socioeconomic actors are mediated through domestic political institutions in ways that can fundamentally affect outcomes. Electoral institutions aggregate interests in ways that affect the ability of groups to organize and the weight they will have in the political process. Some have hypothesized, for example, that proportional representation tends to reduce the impact of special interests and increase the importance of the median voter when compared with first-past-the-post systems, thus yielding fewer sectoral benefits and subsidies (Rogowski 1987; McGillivray 1997). Within particular systems a number of scholars have argued that legislative chambers representing smaller districts are more likely to reflect special interests, while upper chambers and executives representing larger districts are more concerned with broader or even national public opinion, reducing their support for particularistic policies. Legislative organization also affects foreign economic policymaking by shaping agenda control, veto points, and other interactions among policymaking institutions. Several scholars have claimed that the re-design of US trade policymaking institutions in 1934 so that the President could, within constraints, negotiate reciprocal trade agreements with other countries, promoted a liberalizing trend in American trade policy 2

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(Haggard 1988; Bailey, Goldstein, and Weingast 1997). More differentiated analyses have developed inferences about the effects of partisan control of Congress and the Presidency on the outcome of trade policy, such as the argument that divided American governments are more likely to yield protectionist policies than unified governments (Lohmann and O’Halloran 1994). On the principle that a disciplined national party, analogous to the American president, is concerned about a national constituency, others have claimed that electoral and legislative institutions leading to strong party discipline will typically deliver policies less in thrall to special interests, such as freer trade (McGillivray 1997). Still others have focused on the differences between

“the most challenging questions in IPE have to do with the interaction of domestic and international factors as they affect policies and outcomes” single-party versus multiple-party governments, arguing that in the latter case it is harder for voters to assign blame or credit to a particular party, reducing incentives for “opportunistic” partisan manipulation of foreign economic policies (Bernhard and Leblang 1999). Finally, attention to institutions also directs attention to delegation to bureaucratic and other agencies. Some scholars see independent agencies as particularly likely to be captured by special interests. Most, however, regard independent bureaucratic entities from an explicit agent-theoretic perspective in which the agency responds to the policy needs of politicians, albeit with some room for maneuver (slack). Often independent agencies are regarded as providing politicians a protective cushion from day-to-day or particularistic demands, while also ensuring their accountability to the public. The interplay of independence and accountability depends strongly on the issue area, and on other

characteristics of the political economy. The literature on central bank independence, for instance, typically begins with the assertion that independence can mitigate the timeinconsistency of monetary policy. Politicians can thus best respond to the policy preferences of the mass public (median voter) for low inflation by insulating the central bank from the temptation to alter monetary policy – within the boundaries of ultimate accountability to the political authorities. A related argument is that governments with independent central banks are less likely to engage in electorally-motivated manipulations of exchange rates, and can commit credibly to low inflation, obviating the need to fix their exchange rate to gain anti-inflationary credibility, making central bank independence and fixed currencies policy substitutes (Clark and Reichert 1998; Clark and Hallerberg 2000; Broz 2000). International politics and economics Along with the domestic politics of foreign economic policy, the second major building block of the larger IPE edifice is analysis of strategic interaction at the international level. Scholars have developed theoretical and empirical approaches to the ways in which states relate to one another as they devise their international economic policies, and to the institutional forms that these relations take. Strategic interaction among states. Treating states as units – although not identical units – scholars ask how the constraints and opportunities offered by the international system, and processes of interaction with other states, influence decisions and outcomes. The analysis centrally involves three elements: identification of state interests; specification of the strategic setting; and attention to the role of uncertainty, beliefs, and ideas in explaining policy choice. Among attempts to identify state interests, one approach builds on the continued on page 4

From the... Fr om the Editors From Dear Readers: We hope you enjoy this new edition of the Section newsletter. The feature essay this time around is a survey of the field of international political economy by Jeff Frieden and Lisa Martin. They provide a concise review of recent developments in this exciting field. As they point out, it is a discipline that is not for the faint hearted: it blends the study of economics with the study of politics, combines insights from the analysis of international relations and comparative politics, and draws from the latest research on institutions, information, and ideas. Frieden and Martin argue that recent work focusing explicitly on interactions between international and domestic politics is offers the most potential for new breakthroughs. We would welcome your

From the

comments on the essay. As Liz Gerber mentions in her remarks, we are now organizing the transition to a largely electronic publication. Our next edition of the newsletter will be mailed out to all of you as usual, but all subsequent editions will be emailed in electronic format and published (after a short delay) on the new Section web page (http:// www.apsanet.org/~polecon). Any members who wish to continue receiving the newsletter in hard copy should contact Stacie Williams ([email protected]) before March 30, 2002. We hope to develop the new web page into a valuable resource for section members. Besides providing an archive for the newsletter, it will serve as a notice board for Section news and

announcements from the chair. The site will also provide listings of political economy panels and papers for the major conferences, a calendar of upcoming events and deadlines, and advertisements for political economy conferences and grants. It will also contain links to the Political Economy Working Paper Archive and to a variety of sites providing resources of interest for Section members. As always, we encourage contributions to the newsletter (ranging anywhere from feature essays to curt letters). Suggestions for the web page would also be very welcome. Sincerely, Michael J. Hiscox [email protected] Brian Burgoon [email protected]

format. We will therefore continue publishing the hard copy version through the next issue. Then, we will email the electronic version to the entire section membership as a .pdf email attachment. After a short delay, we will post the electronic version on the section’s web page (http://www.apsanet.org/~polecon). Given the significant cost savings of the electronic format, recent advances in web and email technology, and our membership’s widespread usage of email and the web, we believe this change is well justified. However, we recognize that some members will have limited access to email and the web, or will simply prefer to receive the printed version. Therefore, any members who wish to continue receiving the newsletter in hard copy should contact Stacie Williams at 734-6474091 or [email protected] before March 30, 2002.

Lawrence Rothenberg, Department of Political Science, University of Rochester, Chair Lee Alston, Department of Economics, University of Illinois Layne Mosely, Department of Political Science, Notre Dame Univeristy Craig Volden, Department of Political Science, Claremont Graduate University

Chair

Dear Fellow Political Economists: Greetings, and best wishes for a happy and productive New Year! I am delighted to welcome you to the Winter 2002 issue of the APSA’s Section on Political Economy Newsletter. Once again, Michael Hiscox, Brian Burgoon, and Amanda Harris have put together a terrific issue. I hope you find it valuable, interesting, and informative. I’d like to take this opportunity to update you on a number of recent developments within the Political Economy Section. Web site: the APSA has recently expanded its support of section web pages on the association’s web site. The Political Economy Section’s new web page can be found at http:// www.apsanet.org/~polecon. We intend to use this site to post section news and announcements, contact information, and the electronic version of this newsletter (see below). For information about the web page contact Michael Hiscox ([email protected]. edu). Electronic newsletter: at the 2001 APSA Business Meeting, the section voted to phase out hard copy publication of our newsletter and move to an all-electronic

Awards: nominations for the section’s 2002 book and dissertation awards are due March 1st, 2001. Please send these nominations directly to the committee chairs, below: William H. Riker Award for the best book in Political Economy published in the last 3 years

Section on Political Economy Best Dissertation Award, completed in 2001 Scott Adler, Department of Political Science, University of Colorado, Chair Brandice Canes-Wrone, Department of Political Science, MIT Dan Treisman, Department of Political Science, UCLA Mark Brawley, Department of Political Science, McGill

Finally, I would like to thank all of the individuals who have found time in their busy schedules to participate in the Political Economy Section’s activities. I hope you enjoy this issue of the section newsletter. Please feel free to contact me if you have any questions about the Section or this newsletter, or if you have any ideas about what we might be doing to promote research and teaching on political economy. Best regards, Elisabeth Gerber Winter 2002

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Feature Featur Featuree Essay cont. continued from page 2 Beyond attention to the origins of domestic analyses described above, but focuses on commonalities among groups state interests, the analysis of of countries. For example, patterns of international interaction investigates the interests can be characterized by international political and economic specifying the degree of common interest strategic setting. By “strategic setting,” among actors. Where common interest we mean the structure of interaction, or is high, our attention is then drawn to the form of the game. How many states those factors that encourage or are involved in any particular negotiation discourage realizing those common or other mechanism of policy choice? Are interests (Oye 1986, Fearon 1998). These states interacting in a highly might be characteristics of the states institutionalized environment, or one with themselves or aspects of the international few rules constraining the nature of the environment, such as the costs of interaction? These questions may lead monitoring others’ behavior. When the us to examine implicit or explicit voting rules, such as degree of common w h e t h e r interest is low, in “it is surprising how narrow is the unanimity is contrast, our range of analytical and empirical required, or attention turns to problems that existing scholarship whether some factors that has tackled in earnest” version of i n f l u e n c e majority rule outcomes in the presence of high levels of conflict. We prevails. The international environment might ask about first-mover advantages, also influences the order in which issues the opportunity costs of using military will be considered, or which issues will force or holding out for a better deal, or be linked to one another, and how much the wherewithal of states to engage in weight actors put on future relative to coercive diplomacy. A second approach immediate outcomes (i.e., the relevant to identifying interest is to focus on the discount factors). Studies of trade wars position of nation-states in the suggest that a long shadow of the future international system. That is, the focus mitigates pressures for conflict is more outside-in than inside-out, asking (Conybeare 1986). We also care about how the international political or the prospects for enforcing agreements. economic system shapes state goals. For Roughly accurate answers to all these instance, the long tradition of work in IPE questions are necessary in the attempt that focuses on how patterns of interests to specify how international interaction depend on the distribution of power in matters for IPE. One aspect of the strategic setting the international system has developed from the initial presumption that a highly that is especially important is the nature concentrated distribution of power leads of uncertainty. Strategies in an to preferences that facilitate cooperation environment of complete information (Kindleberger1975; Krasner 1976). A differ tremendously from those in which second generation of work considered states are unsure of others’ preferences, how participation in small groups might or of the relationship between policies facilitate group cooperation (Snidal adopted and outcomes achieved. To 1985), and how the issues at stake simplify somewhat, two types of influenced patterns of interests uncertainty are important for IPE: (Conybeare 1984; Gowa 1989). Recent uncertainty about the preferences of work is even more careful about how others, and about causal relationships. One of the more important tools in power distributions influence interests, distinguishing among different types of the analysis of the first type is gameplayers in the international system (Lake theoretic investigation of signaling and 1984) and considering the interaction of reputation (see Morrow 1999; Morrow security and economic interests 1994; Kreps and Wilson 1982). In most settings, signals sent by states are most (Mansfield 1994). 4

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effective in changing the beliefs of others if these signals are costly. Otherwise, intended recipients are likely to dismiss signals as cheap talk. Analyses of some international monetary regimes sees them in this light, as commitment to a fixed exchange rate or a currency union involves a political cost that sends a signal about the intentions of governments (Giavazzi and Pagano 1988). However, in some circumstances even cheap talk can be an effective signal (Crawford and Sobel 1982). This occurs when states believe that they are likely to have a high degree of common interest, and that they will be better off if they coordinate their actions rather than making independent choices. Alternative models of monetary regimes that see them as solving coordination problems rather than as commitment devices draw on this logic, identifying particular exchange-rate systems as focal points (Frieden 1993; Broz 1997). A second type of uncertainty in IPE concerns the relationship between policies and outcomes, or causal relationships. Some refer to this type of uncertainty as lack of precise knowledge about “the state of the world” (Goldstein and Keohane 1993b). Examples of such uncertainty in IPE proliferate. Will fixed or flexible exchange rates improve investment flows and macroeconomic stability? What will be the costs of adjustment after conclusion of a tradeliberalizing agreement? Where states are uncertain about the impact of their policies, prior beliefs again are central. Uncertainty about the relationship between economic policies and outcomes can make efforts at policy coordination counterproductive (Frankel and Rockett 1988; Iida 1990, Iida 1999). While some authors refer to this uncertainty as states “not knowing their own interests,” it is more fruitful to assume that states do know which outcomes they prefer, such as rapid economic growth, but are uncertain about which policies will get them closest to their goals. In this setting, expert knowledge and learning are important. continued on page 5

Calendar Feature Essay cont. continued from page 4 One common strategy is to delegate some policymaking to experts, those with better knowledge about the relationship between policies and outcomes (Krehbiel 1991). This logic provides a way to ask about the influence of “epistemic communities” (Haas 1992) or “supranational entrepreneurs” (Moravacsik 1999). Another strategy is to learn from the experience of others, which may account, for example, for diffusion of liberal economic policies in the last fifty years (Simmons and Elkins 2000). International Institutions. The role of information, uncertainty, and beliefs in shaping international interaction has highlighted the particular importance of international institutions. The rationale for the existence and influence of institutions at the international level is driven almost entirely by informational considerations. In a world of complete information, according to most current arguments, states would not demand institutions and institutions would have no impact on outcomes. However, once we consider the myriad uncertainties that states confront, a potentially powerful role for institutions emerges. The turn toward taking international institutions seriously can be traced to a collective project on international regimes (Krasner 1983) and to Robert Keohane’s analysis of how institutions could facilitate the maintenance of patterns of cooperation “after hegemony” (Keohane 1984). The modern analysis of international institutions begins with simple assumptions. As a first cut, states are treated as unitary actors; domestic politics have barely begun to be integrated into the models. These states are assumed to confront generic collective-action problems. They may take the form of Prisoners’ Dilemma-type games. Or they may take the form of coordination or bargaining problems, where the difficulty is to choose a particular equilibrium in a situation in which the states disagree on which outcome they prefer (Martin 1992b). It is also possible for these problems to

coexist; states may face a bargaining problem followed by an enforcement problem. In a world of no transaction costs, states could solve these dilemmas to reach Pareto-superior outcomes. However, actual problems of incomplete information, such as costs of bargaining and monitoring, can prevent their resolution, leaving all states worse off. International institutions can perform information-provision functions that allow states to overcome collectiveaction problems and therefore have an impact on patterns of behavior, even if these institutions do not regulate, enforce, or otherwise take on the characteristics associated with “strong” institutions on the domestic level. This insight has led to a large body of theoretical and empirical literature on international institutions, both in IPE and international security (see Martin and Simmons 1998). While theories of international institutions have grown more sophisticated over time, empirical work on the effect of institutions in IPE has been limited. It has been more evident in security issues (Duffield 1995; Wallander 1999) and environmental affairs (Keohane and Levy 1996). Recent years have not seen many focused studies of specific economic institutions. One obvious exception is the literature on the European Union. However, little of this literature adopts a particularly institutionalist perspective on the EU (despite the term “institutionalist” being tossed into some theoretical labels), or takes the factors identified as central to institutionalist theories seriously. Application of institutionalist theories to economic institutions thus appears to offer another promising, highly productive avenue for existing research. Basic theoretical precepts are in place, but they need to be adapted to the complexities and context of specific institutions and issues. The scope for careful empirical work is enormous. For example, Beth Simmons’ study of the legalization of international monetary affairs combines the theoretical insights of institutionalism with careful empirical

work to show that concerns of commitment and reputation help explain states’ decisions to create and comply with the rules of the IMF (Simmons 2000). Multilateral trade organizations have received more empirical attention than most economic institutions. Much of this attention has been focused on the dispute-resolution mechanisms of the GATT/WTO (Goldstein and Martin 2000). Institutionalist analyses of GATT dispute resolution ask about the conditions under which states turn to the GATT to resolve disputes (Busch 2000) and the factors that determine the outcome of GATT disputes (Reinhardt 1999). Given the trend of other work on international cooperation discussed above, it is perhaps not surprising that empirical studies of GATT dispute resolution emphasize the importance of domestic factors, such as trade dependence and democracy, in determining outcomes. While our analytical framework begins with the simplifying assumption that states can be treated as unitary actors, it is inevitable that analysts begin to integrate domestic continued on page 6

Calendar March 14-16 Council for European Studies March 22-24 Western Political Science Association March 22-24 Public Choice Society and Economic Science Association March 24-27 International Studies Association March 27-30 Southwestern Political Science Association April 25-28 Midwest Political Science Association Winter 2002 5

Feature Feature Essay cont. continued from page 5 politics in a systematic manner into this framework. This point brings us to the frontier of research in IPE: theories that concentrate on the interaction between domestic and international politics. Domestic-international interaction For decades, a principal challenge to students of international politics generally, and IPE specifically, has been the need to take into account both the domestic political economy of foreign economic policy and the role of strategic interaction among nation-states and nonstate actors. While all scholars recognized the domestic and international levels as necessary building blocks of a more systematic and integrated analysis of international relations, the difficulties of this integration were just as evident. Recent models of domestic-international interaction have pushed IPE research forward along these lines in important ways, although of course much remains to be done The core of the domesticinternational connection is the impact of domestic institutions and interests on international interaction, and vice versa. Our ultimate goal is a simultaneous understanding of this mutual causation, recognizing feedback effects at both levels — a general equilibrium model, rather than a partial equilibrium one in which one level is held fixed while the other varies. Of course, endogenizing two such levels is extremely complex, and progress has been made in small steps at best. Nonetheless, there have been some promising efforts at integration. One approach to domesticinternational interaction looks directly at how the international economy affects domestic interests, institutions, and information in ways that then feed back to national policies. The international economy might affect national foreign economic policymaking by two related channels. The first runs directly from the global economy to the preferences of national socioeconomic and political actors. In this variant, international economic trends directly affect the 6

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interests of domestic groups, leading possibility of defending intermediate them toward new policy preferences, or regimes. One variant of analysis of the impact to change their domestic political behavior. For example, the expansion of of the international economy on domestic world trade can have a powerful impact institutions is about the effects of on firms’ or industries’ trade policy “globalization” on the prospects for the preferences. New export opportunities social-democratic welfare state and can lead previously protectionist firms similar social policies. For example, to turn toward free trade, as some argue Rodrik (1997) has argued that economic was the case for American manufacturers integration has reduced the ability of after World War Two; alternatively, the governments to tax capital, thus limiting opening of new export markets can lead the scope for government policies to deal free-trade firms to redouble their lobbying with the social dislocations that efforts. Similarly, the state of international globalization itself creates. Others believe capital markets can have a big impact on that these effects are less limiting, still the preferred policies of groups in allowing for different national economicpotential borrowing countries: the policy paths (Garrett 1998). While these perspectives look at the prospects of access to thriving global financial markets can lead firms and impact of international factors on sectors to champion national trade, domestic interests and institutions, this monetary, or exchange-rate policies they can be turned around to look at how the structure of international economic might not otherwise support. In addition to affecting domestic institutions alters the information interests, the international economy available to and policy incentives for might also affect domestic institutions, some domestic actors. For example, some for example by making a previously argue that WTO provisions allowing one feasible policy difficult to sustain. For country to retaliate for WTO-illegal policies by another example, national country by capital controls are “theoretical work on internaexcluding some of relatively easy to tional institutions has far outthe violator’s impose and enforce stripped the quantity and quality exports will lead when the world’s of empirical work” o t h e r w i s e capital markets are indifferent exporters dormant or barely active, as was the case until the middle in the violator to lobby domestically 1970s. However, the explosion of against national trade policies that might international financial activity in the lead to such retaliation (Goldstein and 1980s and 1990s made it extremely Martin 2000). For example, if country A difficult for national governments, obtains WTO permission to sanction especially in the more financially country B for its barriers to A’s clothing developed industrial world, to sustain exports, and country A then puts a tariff controls on cross-border investment on country B’s grain exports to A, this (Goodman and Pauly 1993, Andrews will give B’s grain farmers an incentive to 1994). Further, Eichengreen (1996) argues lobby within their own domestic that movement towards Economic and political economy for a reduction in B’s Monetary Union (EMU) in Europe was barriers to clothing imports. This line of made inevitable by the increasing thinking has also been applied to the difficulties European nations had in highly structured nature of interstate sustaining capital controls necessary for bargaining within the European Union, independent monetary policies, and more where cross-issue linkages are rife and generally that high capital mobility has often draw contending domestic interests forced most countries to choose between into the political fray (Martin 2001). Here irrevocably fixed and freely floating too, the chain of causation goes from exchange rates, eliminating the continued on page 7

Etc. Feature Essay cont. continued from page 6 international institutions to domestic institutions, information, and interests, then to national foreign economic policies. In all these approaches, international factors affect national policy by way of their direct effect on the domestic political economy. Another, compatible, approach posits that national governments stand between the domestic and international levels, acting to mediate between them in ways not reducible to one or the other, and in ways that bring domesticinternational interaction to the fore. A powerful metaphor for this view of national governments as mediating the domestic-international interaction is that of “two-level games” (Putnam 1988). Initial work on this problem had a very simple characterization of the relevant domestic institutions and interests. First, the central domestic institutional actor was assumed to be the “chief of government” (COG) or head negotiator, operating at both the domestic and international levels. Second, domestic interests were summarized in terms of the “win set,” the set of all international deals that would be preferred to the status quo by domestic society. In fact, much research in the two-level games tradition concentrates on the determinants of the win set. Third, initial work assumed that the COG was a disinterested representative of the interests of his constituency. This assumption has often been dropped in work building on the metaphor, as the COG is allowed to have independent interests. Adding another set of interests leads to the identification of the “acceptability set,” those international agreements that the COG finds preferable to the status quo. Any deal reached and implemented must lie within both the win set and the acceptability set. The two-level game framework provides tools for thinking about domestic-international interaction. Most work in this tradition has focused on how domestic interests, institutions, and information influence negotiation and cooperation on the international level. One promising avenue is to look at the

impact of legislatures on the ability of governments to commit to international agreements (Martin 2000). In democracies, legislatures have the ability to block or frustrate the implementation of international commitments even if they do not require formal legislative approval. Therefore, agreements negotiated without legislative participation may lack credibility. Agreements gain credibility when the legislature has been involved in a structured, institutionalized manner in the negotiating process. One major reason has to do with considerations of uncertainty, as legislative participation reveals information to both its own government and others about which deals will be implemented. Other productive applications of the two-level games approach include work on trade bargaining that formalizes ideas about win sets and ratification, and treats uncertainty explicitly (Milner and Rosendorff 1997; Milner 1997). These models identify a president with preferences over the degree of trade liberalization and a legislature that must ratify any international agreement. They assume two countries; for simplicity, the domestic politics of the “foreign” state are not treated in as much detail as those of the “home” state. On the international level, a Nash bargaining solution specifies the outcome of negotiations. Analytical interest thus turns primarily to the effect of the ratification requirement in the home state. Here, two factors get the most attention: the interests of the legislature, particularly how its ideal point differs from that of the president; and the degree of uncertainty associated with international negotiations. Work on domestic-international interaction has made substantial progress over the past fifteen years. Yet there is much to be done. At this point, the analysis of domestic-international interaction requires heroic assumptions and simplifications, such as reducing domestic institutions to an executive and a legislature, or reducing domestic interests to a median voter. Future work will need to allow for more nuance and

development, incorporating other domestic institutions such as political parties, courts, and central banks, and a more sophisticated treatment of domestic interests. Models of domesticinternational interaction will also need to address more issue areas than international trade, where they have been developed most successfully, perhaps because of the strong preexisting microfoundations. Conclusions The study of international political economy has made great advances in 25 years. After a period of internecine paradigmatic conflict, most scholars in the field have accepted a general, positivist, approach to investigating continued on page 8

American Political Science Association Political Economy Section Officers, 2002 Chair Elisabeth Gerber, Univ. of Michigan Secr etar y/T er Secretar etary/T y/Trr easur easurer Chuck Shipan, Univ. of Iowa Executive Committee Bill Bernhard, Univ. of Illinois Virginia Haufler, Univ. of Maryland Anna Harvey, New York Univ. David Lake, UCSD Carol Mershon, Univ. of Virginia Mike Thies, UCLA Newsletter Editors Michael Hiscox, Harvard Univ. Brian Burgoon, Univ. of Amsterdam Newsletter Assistant Amanda Harris, UCSD Award Committee Book Award Lawrence Rothenberg, Univ. of Rochester, Chair Lee Alston, Univ. of Illinois Layne Mosely, Notre Dame Univ. Craig Volden, Claremont Graduate Univ. Dissertation Award Scott Adler, Univ. of Colorado, Chair Brandice Canes-Wrone, MIT Dan Treisman, UCLA Mark Brawley, McGill

Winter 2002 7

continued from page 7 issues in the politics of international economics, with many common elements. The sub-discipline has moved strongly in a direction in which new work builds selfconsciously upon, rather than firing broadsides against, existing work, and in which abstract theoretical work complements empirical scholarship. While the general method of analysis is well-established and widely accepted, this hardly means that IPE has exhausted its potential. In fact, it is surprising how narrow is the range of analytical and empirical problems that existing scholarship has tackled in earnest. American trade policy, EMU, and a few international institutions have been studied in some detail; but almost every other area of IPE is wide open for investigation. It may be that a great deal of theoretical, analytical, and methodological brush needed to be cleared before scholars could give these issues as much attention as they warrant.

If so, the academic study of IPE has virtually limitless opportunities to demonstrate the effectiveness and appropriateness of its theoretical and empirical tools. Theoretically, we see the most important frontier as the integration of the domestic and international levels of analysis. Some promising frameworks have been developed, but this work is in its infancy. We also see scope for applying existing frameworks to a wide variety of under-studied empirical issues. Probably the best-studied area of IPE is trade, followed closely by monetary issues. Financial issues, including international investment of various types, receive little attention in the current literature. Likewise, theoretical work on international institutions has far outstripped the quantity and quality of empirical work. As international organizations such as the WTO, IMF, and potential investment agreements are the

The Political Economist Ford School of Public Policy 440 Lor ch Hall, 611 T appan Str eet Lorch Tappan Street University of Michigan Ann Arbor, MI 48109-1220

focus of sustained political attention, and at the forefront of debates about globalization, applying the analytical tools of IPE more seriously to these institutions is likely to be both important and fruitful. The full version of the paper is available in Ira Katznelson and Helen V. Milner (eds.), Political Science: State of the Discipline III, NY: Norton for APSA, 2002. Acknowledgments: The authors acknowledge useful comments and suggestions from Benjamin J. Cohen, Geoffrey Garrett, Miles Kahler, Ira Katznelson, Margaret Levi, Helen Milner, Andrew Moravcsik, Dani Reiter, Ronald Rogowski, and Ken Shepsle. 1

The review we present, however, is not intended to be exhaustive. We do not, for example, attempt to include the work of scholars who challenge the positivist approach that is assumed here. We believe that this survey does reflect the principal focuses of North American scholarship, although it is not reflective of much European scholarship.